Landlord & Tenant

Tenant May Not Enforce Agreement That Violates Rent Stabilization Policy

Riverside Syndicate, Inc. v. Munroe

NYLJ 2/8/08, p. 28, col. 3

Court of Appeals (Opinion by Smith, J.)

In landlord's action for a declaratory judgment that a 1996 agreement with tenants violates public policy and is void, tenants appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to tenants. The Court of Appeals affirmed, holding that neither party may enforce an agreement that permits landlord to recover more than the regulated rent in return for a promise that tenants would be entitled to renewal leases whether or not they met the requirements of the rent stabilization statute.

In 1996, tenants were in occupation of three apartments on Riverside Drive, all subject to rent stabilization. Tenants had subleased one of the three apartments from another tenant, and landlord brought a proceeding to evict tenants, contending that the sublease was illegal. To settle that proceeding, landlord and tenants entered into the disputed agreement, which provided that tenants would be 'recognized as the lawful, rent-stabilized legal tenants of the subject premises at a monthly rental rate of $2,000' ' an amount far in excess of the maximum rent permitted by rent stabilization. The agreement also provided that tenants would waive all right to challenge the legality of the rent, and that tenants could remain as rent-stabilized tenants regardless of their primary residence. The agreement also provided that in the event of deregulation, landlord would offer a renewal lease to tenants every two years, at a rate increase of more than 8%. In 2000, the apartments were deregulated, without objection from tenants. In 2003, however, landlords sought to remove tenants, contending that tenants were not using the apartments as their primary residence. Those proceedings were dismissed without prejudice, but in 2004, landlord brought the current declaratory judgment action. The Supreme Court granted summary judgment to tenants, but the Appellate Division reversed, and tenants appealed. In affirming, the Court of Appeals started with section 2520.13 of the Rent Stabilization Code, which provides that an agreement by a tenant to waive the benefit of provisions of the Rent Stabilization Law or Code is void, with a limited exception for negotiated settlements of complaints pending before DHCR. The court noted that the exception did not apply in this case, because there had never been a complaint pending before DHCR. The court also rejected tenants' argument that enforcement of the agreement would violate no public policy, noting that agreements like the one in question distort the rental market without benefiting the people rent stabilization laws were designed to protect. In concluding that neither party should benefit from the void agreement, the court indicated that tenants might have a claim to recover excess rent paid, and to rescind deregulation of the apartment if deregulation was the result of the illegal agreement.

COMMENT

See lead article in the forthcoming June 2008 issue of the Real Estate Law Reporter.

Tenant May Not Enforce Agreement That Violates Rent Stabilization Policy

Riverside Syndicate, Inc. v. Munroe

NYLJ 2/8/08, p. 28, col. 3

Court of Appeals (Opinion by Smith, J.)

In landlord's action for a declaratory judgment that a 1996 agreement with tenants violates public policy and is void, tenants appealed from the Appellate Division's reversal of Supreme Court's grant of summary judgment to tenants. The Court of Appeals affirmed, holding that neither party may enforce an agreement that permits landlord to recover more than the regulated rent in return for a promise that tenants would be entitled to renewal leases whether or not they met the requirements of the rent stabilization statute.

In 1996, tenants were in occupation of three apartments on Riverside Drive, all subject to rent stabilization. Tenants had subleased one of the three apartments from another tenant, and landlord brought a proceeding to evict tenants, contending that the sublease was illegal. To settle that proceeding, landlord and tenants entered into the disputed agreement, which provided that tenants would be 'recognized as the lawful, rent-stabilized legal tenants of the subject premises at a monthly rental rate of $2,000' ' an amount far in excess of the maximum rent permitted by rent stabilization. The agreement also provided that tenants would waive all right to challenge the legality of the rent, and that tenants could remain as rent-stabilized tenants regardless of their primary residence. The agreement also provided that in the event of deregulation, landlord would offer a renewal lease to tenants every two years, at a rate increase of more than 8%. In 2000, the apartments were deregulated, without objection from tenants. In 2003, however, landlords sought to remove tenants, contending that tenants were not using the apartments as their primary residence. Those proceedings were dismissed without prejudice, but in 2004, landlord brought the current declaratory judgment action. The Supreme Court granted summary judgment to tenants, but the Appellate Division reversed, and tenants appealed. In affirming, the Court of Appeals started with section 2520.13 of the Rent Stabilization Code, which provides that an agreement by a tenant to waive the benefit of provisions of the Rent Stabilization Law or Code is void, with a limited exception for negotiated settlements of complaints pending before DHCR. The court noted that the exception did not apply in this case, because there had never been a complaint pending before DHCR. The court also rejected tenants' argument that enforcement of the agreement would violate no public policy, noting that agreements like the one in question distort the rental market without benefiting the people rent stabilization laws were designed to protect. In concluding that neither party should benefit from the void agreement, the court indicated that tenants might have a claim to recover excess rent paid, and to rescind deregulation of the apartment if deregulation was the result of the illegal agreement.

COMMENT

See lead article in the forthcoming June 2008 issue of the Real Estate Law Reporter.